Equity markets were boosted by a combination of strong US New Home Sales and solid Asian economic news. Investors were hopeful that the US economy has turned the corner and positive guidance from Fedex helped spark the markets. The S&P 500 Index rallied 12 points to close the trading session at 1115.
New Home Sales increased 23.6% from the previous month to a seasonally adjusted annual rate of 330,000, according to the Commerce Department. Inventories fell, which is a hopeful sign. Economists surveyed had estimated sales would climb in June by 3.7% to 311,000. May sales fell 36.7% to a record 267,000, revised down from an originally reported 32.7% plunge to 300,000. The sharp drop followed buyers rushing to the market before the tax credit ended April 30, causing sales to soar in the spring. Year-over-year, sales in June were down 16.7%. The median price for a new home declined, year-over-year, in June by 0.6%, to $213,400 from $214,700 in June 2009.
CFTC data shows that for the week ended July 20, speculative bets on a stronger US dollar were overall lower. Net short euro positions fell to -24,251 from -27,050 previously, Swiss franc net long positions rose to 15,113 from 14,590 previously, and sterling net shorts fell to -26,767 from -34,671 previously. AUD net long positions rose to 32,886 from 23,480 previously, CAD net longs fell to 16,424 from 22,038 previously, and NZD net longs rose to 8,973 from 5,452 previously. MXN net longs increased to 35,886 from 28,135 previously. Lastly, yen net longs eased to 40,911 from 47,359 contracts previously. With all of the major currencies stronger vs. the dollar since July 20, last week’s trend of lower bets on a stronger dollar should continue this week as well.
Equity markets continue to react favorably to strong economic data, this time from Asia today. Asian data reported today was mostly stronger than expected. Korea Q2 GDP grew 1.5% q/q vs. 1.3% expected and 2.1% in the first quarter. The y/y rate was 7.2% vs. 6.9% expected and 8.1% in Q1. The Won was hit hard in May and June but has since recovered. Given what we view as good Korean fundamentals, KRW should continue to benefit from the improved market sentiment. Singapore IP rose 26.1% y/y vs. 38.4% expected and a revised 58.4% (was 58.6%) in May, while Japan exports rose 27.7% y/y vs. 23.5% expected and 32.1% in May. We continue to believe that Asia will outperform in terms of growth in the coming quarters, and should keep regional central banks in tightening mode, which in turn should boost currency attractiveness. Low yields have been the one knock against Asian currencies, but that is clearly changing. Additionally, People’s Bank of China on Monday laid out how a more flexible exchange rate will help alleviate inflationary pressures in the Chinese economy and generally improve the effectiveness of its monetary policy. Although the statement mostly focuses on past inflation pressures, its sharp focus and hawkish rhetoric on inflation likely indicate the central bank would like to allow further Yuan appreciation if it perceives continued inflationary risks in the economy.
